Average Mortgage Rate Hits 5%, Lowest in Decades

The Federal Reserve’s plan to coax mortgage rates lower is working: rates on 30-year fixed loans fell for the 10th consecutive week to the lowest levels in decades, according to a recent Freddie Mac survey.

What is not clear, however, is whether rates are attractive enough to lure a significant number of home buyers back into the ailing housing market.

Interest rates on conforming mortgages dropped to an average of 5.01 percent for the week ending Jan. 8, with an average fee of 0.6, which is known as a point and is paid to lower the mortgage rate.

That was down from last week’s 5.10 percent and 5.87 percent a year ago, according to Freddie Mac, and a high of about 6.7 percent last summer.

Mortgage rates are at their lowest point since Freddie started its survey in 1971.

The decline in rates was initially spurred by the Federal Reserve’s plan, announced in late November, to buy back $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. Since demand for those securities had dried up, the Fed hoped that buying a sizable number of these investments would raise their price and lower their yields.

Mortgage rates tend to track those yields. The Fed started buying mortgage-backed securities on Monday, and had bought a total of $10.21 billion in securities as of Wednesday.

“Since the Fed announced they would buy mortgage-backed securities, we have seen a pretty healthy increase in refinance applications, while purchase applications have trended up, but not as significantly,” said Orawin Velz, the Mortgage Bankers Association’s vice president for economic forecasting.

The Mortgage Bankers Association said its refinance index, which measures refinancing activity weekly, stood at 5,904.5 as of Jan. 2, up from 1,254 on Nov. 21, before the Fed’s announcement. During the same time period, its purchase index rose to 344.2, from 261.6.

The survey does not measure how many of those applications become loans.

“Refinance activity continues to be strong, but purchase inquiries are relatively static,” said Cameron Findlay, chief economist at LendingTree.

Of course, buying a home is a more lengthy process than simply calling up a mortgage broker to refinance, and activity typically slows during the holiday season. But many home buyers are discouraged from jumping into the housing market given the increasingly dismal economic outlook.

Meanwhile, to qualify for the best rates, consumers still face stiff requirements. Borrowers need a credit score of about 720, along with 10 to 20 percent of equity in their homes. And many homeowners need to sell their existing properties to consider a new one.

Consumers can bide their time for now, because rates are expected to remain at attractive levels. “We are looking at mortgage rates to be about 5 percent or slightly higher through most of 2009,” Ms. Velz said.

There were hopes that rates would fall even further.

Last month, the Treasury Department was reportedly talking to Fannie Mae and Freddie Mac about ways to push rates as low as 4.5 percent. But no action has been taken, and the Treasury is not expected to put forth a new proposal in the last days of the Bush administration.

A version of this article appears in print on , on Page B2 of the New York edition with the headline: Average Mortgage Rate Hits 5%, Lowest in Decades. Order Reprints|Today's Paper|Subscribe